BMI's Executive Summary

[TOP]

The Sector At A Glance

Key Insights On The Atuomotive Sector Of Asia

The expansion of Central Asia's automotive market will depend on the multiplier effects of growth in the oil and gas sectors in the rest of the economy, according to BMI's latest Central Asia Automotive Report. The openness of each market and the overall business environment determines how growth in key sectors can lead to the investment and development of financial services and banking sector liquidity and in turn greater availability of credit. High rates of GDP growth often mask structural problems within the economies of Central Asia and are not an adequate indicator of future growth in automotive sales. Another determinant is exchange rate movements, which have an impact on vehicle prices. As a relatively free market economy, Kazakhstan is witnessing broad growth within the economy with a rapid growth in financial services and incomes, which are underpinning a surging demand for cars. There are downside macroeconomic risks with inflation and the depreciation of the tenge likely to lead to higher interest rates, which would in turn affect demand in the car market. GDP growth in Uzbekistan is not as rapid as in Kazakhstan and has not led to the broader economic expansion seen in Kazakhstan, with lower levels of disposable income and consumer credit. An increasingly protective stance on trade will limit automotive import growth and therefore scope for market growth, although this will ensure a market for domestically manufactured cars.

Uzbekistan is the largest automotive manufacturer in Central Asia, with its UzDaewoo car plant expected to manufacture around 115,000 cars in 2006. Uzbekistan's SamKOCAvto announced in September 2006 that it is to start manufacturing Isuzu buses and trucks after signing an agreement with Japan's Itochu Corporation for the supply of complete knock down (CKD) kits. SamKOCAvto is a joint venture (JV) between Turkey's industrial conglomerate Koc Holding and the state-owned Uzautosanoat (Uzbek Automotive Industry Association, also known as Uzavtoprom), set up in 1999 with US$64mn of capital. The agreement will help revive the venture's flagging fortunes. Turkey's industrial conglomerate Koc withdrew its support for the SamKOCAvto JV in 2005 when annual production fell to just 60 units (just 1.5% of installed capacity), leading to the venture's bankruptcy. However, BMI does not believe that SamKocAvto can be sustained in the long-term without state support. Meanwhile, Hyundai's bid for a stake in UzDaewoo - which was fully nationalized in October 2005 - has fallen through due to disputes over the selling price.

Kazakhstan's more liberal investment regime and strong trading ties with Russia are likely to make it a serious contender for investment in the automotive sector in the future. The manufacturing of Skoda models from August 2005 indicates that Kazakhstan is able to work in partnership with non-Russian brands, although further capacity expansion will be needed if Kazakhstan intends to out-perform Uzbekistan's production levels.